Oct 16 (Reuters) - Emerging stock and currency markets drew some comfort on Tuesday from signs Saudi Arabia will acknowledge the death of a missing journalist in a botched interrogation while lukewarm Chinese inflation data cooled concerns over the yuan's fall.

The Saudi riyal rebounded from a two-year low after reports by CNN and the New York Times suggested the country would admit Jamal Khashoggi died while in its custody.

U.S. President Donald Trump's dispatching of Secretary of State Mike Pompeo to Riyadh also encouraged hope that a crisis in relations with the Kingdom that has unnerved already edgy financial markets could be averted.

"Risk sentiment is slightly stronger this morning," Societe Generale strategist Kit Juckes said in a morning note. "Asian equities (are) mixed rather than a sea of red, bond yields generally a bit higher."

Gains in Russia's rouble, South Africa's rand and most Asian peers helped lift the MSCI index of emerging market currencies by 0.22 percent, while a 0.5 percent gain for MSCI's index of emerging stocks set it on track to record its second gain in nine sessions.

China's yuan held steady, but Shanghai and Hong Kong shares shed early gains after Chinese producer price inflation cooled for a third straight month in September amid ebbing domestic demand.

That again bode ill for growth but also showed pricing pressures were contained, giving authorities the flexibility to ease monetary policy to shore up slowing growth.

Off-balance-sheet borrowings by Chinese local governments could be as high as 40 trillion yuan ($5.78 trillion) and amount to "a debt iceberg with titanic credit risks", S&P Global Ratings said in a report on Tuesday.

South Korea's won firmed 0.4 percent after the country agreed to begin reconnecting rail and road links with North Korea, boosting sentiment over stability in the region.

The Philippine peso traded near 13-year lows versus the dollar its government shaved its economic growth target for 2018 and raised inflation forecasts for 2018 and 2019, as soaring consumer prices curb expansion in one of Asia's fastest growing economies.

Rising oil prices have added to woes for countries including India, Indonesia and Turkey, who rely on imports of their fuel supply and the Saudi affair has played into those concerns.

"Possible sanctions towards Saudi Arabia would provide a tailwind for oil prices (and) right now, there is a general concern that higher oil prices would ignite inflation," said Danske's head of EM Research, Jakob Christensen.

"That would tend to weigh on EM sentiment."

The forint hit a two-month high against the euro after Hungary's central bank decided to boost the size of its gold reserves to 31.5 tonnes, ten times the former amount.

The bank is expected to keep interest rates at a record low at 0.9 percent, in a meeting on Tuesday, despite a recent pickup in inflation.

Other currencies in the region, including the Polish zloty and the Czech crown treaded water as Italy's anti-establishment government signed off on an deficit-hiking budget that puts it on course for a showdown with Brussels.